FERA AND FEMA
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Transcript of FERA AND FEMA
Comparison of FERA & FEMA
FERA
FERA- AN ACT
To amend the law regulating certain payments, dealings in foreign exchange, effecting foreign exchange and import and export of currency, for the conservation of the foreign exchange resource of the country and the proper utilization thereof in the interests of the economic development of the country.
FERA
Regulated in India by the Foreign Exchange Regulation Act (FERA),1973.
Consisted of 91 sections.
FERA Emphasized strict exchange control.
Control everything that was specified, relating to foreign exchange
Law violators were treated as criminal offenders.
Aimed at minimizing dealings in foreign exchange and foreign securities.
Why FERA?
FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low, Forex being a scarce commodity.
FERA therefore proceeded on the presumption that all foreign exchange earned by Indian residents rightfully belonged to the Government of India and had to be collected and surrendered to the Reserve bank of India (RBI).
FERA primarily prohibited all transactions, except one’s permitted by RBI.
Objectives
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic development of the country.
FOREIGN EXCHANGE MANAGEMENT,1999[FEMA
• FEMA is “an act to consolidate and among the law relating to Foreign Exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of Foreign exchange market in India”.
• Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines for the free flow of foreign exchange in India.
The Objectives are as follows• To regulate impact and export of currency
• To regulate acquisition holding etc .of immovable property in India by NRI’s.
• To regulate holding of property (immovable) outside India.
• To regulate certain payments.
• To regulate Foreign companies.
• To regulates dealing in FE and securities.
• To regulate the transactions indirectly affecting FE.
• To regulate employment of foreign nationals.
• To converse the FE resources of the country and to utilize the same is the interest of the economic development of the country.
STRUCTURE OF THE FEMA (ACT)
• FEMA has in all 49 sections of which 9 (section 1 to 9) are substantive and the rest are procedural/administrative.
• Thus RBI is entrusted with the administration and implementation of FEMA
The FEMA act extends to the whole of India. The main provision of the Act are as follows:
Section 2: Clarity on several definitions and terms used in the context of foreign exchange.
Section 3:Prohibits dealing in Foreign Exchange
Section 4 Holding of foreign Exchange
Section 5 Current account Transaction
Section 6 : Capital account Transaction
Section 7: Export of Goods and Services
Section 8 : Realisation of Repatriation and Foreign Exchange
Case study: Kites
Allegations:1.Used foreign exchange meant for production
work to meet personal expenses2.Carried junk film reels from India for the shoot
but used fresh reels bought in the US3.Paid Spectrum Entertainment just $ 4.3
million against pending bills of $ 5.9 million
Background of case
• Production budget of Rs. 60 crore• Sold for Rs. 110 crore in worldwide rights to
the Reliance Group• Film shot in Maldives, Mexico and the US• Spectrum Entertainment hired by Roshan to
manage all outdoor shoots of Kites in the US• Reels were bought in US and cost Roshan Rs.
50 lakhs
evaluation
1. The production house is gaining tax benefits showing personnel expenditure as creative expenses
2. Evaded duty on Reels, bought from US, when returned to India
3. Spectrum has all the challans of withdrawals by Roshan
conclusions
1. The personal expense, if proved, must only invite minimal penalty of 3 times the duty evaded
2. Spending of Rs. 50 lakhs in US is violation of FEMA and can invite penalty of upto 3 times the original amount applicable
3. The Spectrum matter will not be taken up by the ED without a proper evaluation of the situation between the complainant & the Indian production house
Rule 3 read with Schedule I:Prohibited Transactions
• Pymt for travel to Nepal and/or Bhutan• Remittance out of income from :- lottery
winnings, or racing/riding etc., or any other hobby;
• Remittance for purchase of :- lottery tickets, or banned/ prescribed magazines, football pools, sweepstakes etc.
• Pymt of comm. on exports made towards equity investment in JV abroad of Indian Companies
Rule 4 read with Schedule II:Transactions with CG Approval
• Pymt of imports by a Govt. Deptt. or a PSU on CIF basis
• Cultural Tours• Remittance of prize money/ sponsorship of
sports activity abroad > US$ 1,00,000 (no restriction if pymt made by International /National/ State level Sports Bodies)
• Pymt for health insurance from a company abroad
Rule 5 read with Schedule III: (if beyond limits)
Similarities between FERA & FEMA
• The Reserve Bank of India and central government would continue to be the regulatory bodies.
• Presumption of extra territorial jurisdiction as envisaged in section (1) of FERA has been retained.
• The Directorate of Enforcement continues to be the agency for enforcement of the provisions of the law such as conducting search and seizure
Comparison FERA & FEMA
Differences FERA FEMA
Emphasis On regulation of foreign exchange
On management of foreign exchange
Situation Stringent controls were required on the use of foreign exchange
Stringent controls are not required now
Permission Need to take permission of RBI in connection with remittances
No need for seeking the permission of RBI except in case of Section 3
Restrictions Restrictions on drawals of foreign exchange for the purpose current account transactions
Section 5 removes all restrictions on drawals of foreign exchange
Comparison FERA & FEMADIFFERENCES FERA FEMA
PROVISIONS FERA consisted of 91 sections, and was more
complex
FEMA is much simple, and consist of only 49 sections.
FEATURES Presumption of negative intention (Mens Rea )
and joining hands in offence (abatement) existed
in FERA
These presumptions of Mens Rea and abatement have been
excluded in FEMA
NEW TERMS IN
FEMA
Terms like Capital Account Transaction, current
Account Transaction, person, service etc. were
not defined in FERA.
Terms like Capital Account Transaction, current account
Transaction person, service etc., have been defined in detail in
FEMA.
DEFINITION OF
AUTHORIZED
PERSON
Definition of "Authorized Person" in FERA was a
narrow one ( 2(b)
The definition of Authorized person has been widened to include
banks, money changes, off shore banking Units etc. (2 ( c )
MEANING OF
"RESIDENT" AS
COMPARED WITH
INCOME TAX ACT.
There was a big difference in the definition of
"Resident", under FERA, and Income Tax Act
The provision of FEMA, are in consistent with income Tax Act, in
respect to the definition of term " Resident". Now the criteria of
"In India for 182 days" to make a person resident has been
brought under FEMA. Therefore a person who qualifies to be a
non-resident under the income Tax Act, 1961 will also be
considered a non-resident for the purposes of application of
FEMA, but vice-a-versa may not hold true.
Comparison FERA & FEMAPUNISHMENT Any offence under FERA, was a criminal offence ,
punishable with imprisonment as per code of criminal
procedure, 1973
Here, the offence is considered to be a civil
offence only punishable with some amount of
money as a penalty. Imprisonment is prescribed
only when one fails to pay the penalty.
QUANTUM OF PENALTY. The monetary penalty payable under FERA, was nearly
the five times the amount involved.
Under FEMA the quantum of penalty has been
considerably decreased to three times the
amount involved.
APPEAL An appeal against the order of "Adjudicating office",
before " Foreign Exchange Regulation Appellate Board
went before High Court
The appellate authority under FEMA is the special
Director ( Appeals) Appeal against the order of
Adjudicating Authorities and special Director
(appeals) lies before "Appellate Tribunal for
Foreign Exchange." An appeal from an order of
Appellate Tribunal would lie to the High Court.
(sec 17,18,35)
RIGHT OF ASSISTANCE
DURING LEGAL
PROCEEDINGS.
FERA did not contain any express provision on the right
of on impleaded person to take legal assistance
FEMA expressly recognizes the right of appellant
to take assistance of legal practitioner or
chartered accountant (32)
POWER OF SEARCH AND
SEIZE
FERA conferred wide powers on a police officer not
below the rank of a Deputy Superintendent of Police to
make a search
The scope and power of search and seizure has
been curtailed to a great extent
THANK YOU!!!